Archive for the ‘interest rates’ Category

WASHINGTON – The Federal Reserve and six other major central banks from around the world slashed interest rates Wednesday in an attempt to prevent a mushrooming financial crisis from becoming a global economic meltdown.

The Fed reduced its key rate from 2 percent to 1.5 percent. In Europe, which also has been hard hit by the financial crisis, the Bank of England cut its rate by half a point to 4.5 percent and the European Central Bank sliced its rate by half a point to 3.75 percent.

Also cutting rates were the central banks of China, Canada, Sweden, and Switzerland. The Bank of Japan said it strongly supported the actions.

“The recent intensification of the financial crisis has augmented the downside risks to growth,” the Fed said in explaining the coordinated action.

WASHINGTON – Federal Reserve Chairman Ben Bernanke warned Wednesday the economy may shrink over the first half of this year and that “a recession is possible.” Yet, he didn’t offer any assurances of further interest rate cuts.

Bernanke’s testimony to the Joint Economic Committee was a much more pessimistic assessment of the economy’s immediate prospects amid a trio of crises — housing, credit and financial.

“It now appears likely that gross domestic product (GDP) will not grow much, if at all, over the first half of 2008 and could even contract slightly,” Bernanke told lawmakers. GDP measures the value of all goods and services produced within the United States and is the best barometer of the United States’ economic health. Under one rule, six straight months of declining GDP, would constitute a recession.

Still, Bernanke said that he expects more economic growth in the second half of this year and into 2009, helped by the government’s $168 billion stimulus package of tax rebates for people and tax breaks for businesses as well as the Fed’s aggressive reductions to a key interest rate. Nevertheless, the chairman acknowledged uncertainty about the Fed’s next steps, notwithstanding the mounting economic woes.

NEW YORK – Wall Street stormed higher Tuesday as investors, optimistic following stronger-than-expected earnings from two big investment banks, were also galvanized by the Federal Reserve‘s decision to cut interest rates by three-quarters of a percentage point. The Dow Jones industrial average soared 420 points, its biggest one-day point gain in more than five years.

Trader Vincent Quinones, foreground right, gathers with other traders on the floor of the New York Stock Exchange, Tuesday March 18, 2008. Wall Street gave up some of its steep gains Tuesday while investors digested the Federal Reserve’s decision to cut interest rates by three-quarters of a percentage point. Many investors had expected a cut of a full percentage point.(AP Photo/Richard Drew)

Many investors were expecting the Fed to cut rates a full point, but appeared to overcome their early disappointment, especially since a 0.75 point cut is still substantial. The central bank’s benchmark fed funds rate is now at 2.25 percent — its lowest level since December 2004, and less than half what it was last summer. The Fed began lowering rates exactly six months ago, after the credit markets seized up due to soaring defaults in subprime mortgages.

In its statement accompanying the rate decision, the Fed said “recent information indicates that the outlook for economic activity has weakened further,” but also that “uncertainty about the inflation outlook has increased.”

“The Fed once again in the statement showed that it is ready for further action if this were needed,” said Christian Menegatti, lead analyst for online economic research firm RGE Monitor. “It also showed the fact that it’s still paying attention to inflation … but that it is far from being the primary concern right now. And the market knows that, and it is happy.”

By John E. Carey
Peace and Freedom
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The United States is in a recession and economic storm clouds loom in Asia.

U.S. homeowners have more debt than ownership (equity) causing many to “bail out” on their mortgages. Banks now own more and more houses. To make it easier to buy, the Federal Reserve has lowered interest rates over and over again. The Fed may lower rates again next week.

The dollar is way down compared to the euro — and just about all other reputable currency — and oil prices are up because of this, high world-wide demand and limited refining capacity.

A US banknote is reflected on a euro coin. The dollar found some support Monday, gaining ground on the euro on warnings against excessive exchange rate volatility from European Central Bank head Jean-Claude Trichet.(AFP/File/Joel Saget)
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In China, where banks hold over a trillion dollars in foreign exchange reserves, a sell-off of dollars could also depress the dollar further. Fear of such an action alone is enough to make economists wary of pressuring China.

Farmers in the Midwest of America are delighted by high corn prices – much attributable to demand for corn-made ethanol. But the high price of corn is a burden to those trying to feed livestock.

The good news is that it is so expensive to feed cattle right now that the farmers are slaughtering beef at a better than average rate. Beef is cheep just now (but watch out next year).

The price of wheat per bushel has doubled in the last few months. This means bread, pizza and bagels are going up in price. Beer too!

Because of the low dollar, screwy farm prices and high gasoline prices, pretty much everything in the grocery store is costing more.

Retail sales are way down and applications for unemployment are way up.

But recession has a real definition and this, plus politics, has prevented the White House from using “The ‘R’ Word” much.

In macroeconomics, a recession is a decline in a country’s gross domestic product gross domestic (GDP), or negative real economic growth, for two or more successive quarters of a year.

For the U.S., the judgment of the business-cycle dating committee of the National Bureau of Economic Research regarding the exact dating of recessions is generally accepted. The NBER has a more general framework for judging recessions:
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A recession is a significant decline in economic activity spread across the economy, lasting more than a few months, normally visible in real GDP, real income, employment, industrial production, and wholesale-retail sales.
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A recession begins just after the economy reaches a peak of activity and ends as the economy reaches its trough. Between trough and peak, the economy is in an expansion. Expansion is the normal state of the economy; most recessions are brief and they have been rare in recent decades.
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So, we at Peace and Freedom believe we Americans are in a recession and we see dark economic clouds world-wide, especially in Asia.

China’s high January and February readings for inflation have increased the pressure on the government to take action to counter price rises. In China, annual consumer inflation jumped to 8.7 percent in February after hitting 7.1 percent in January, the worst in more than 11 years.

But much of the current economic turbulence in China, the communist government says, is attributable to the largest winter snowfall in 100 years. China says their economy will quickly rebound.

Confidence among Australian consumers weakened sharply in March to its lowest level since 1993, according to data released Wednesday, sparking economists’ predictions that the central bank is unlikely to continue a run of interest rate hikes.

The International Monetary Fund has warned Vietnam that its fast-growing economy is overheating. It has advised Hanoi to adopt a more flexible exchange rate regime and to tackle imprudent lending practices by commercial banks, in order to help control inflation.
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Vietnam’s Communist authorities are battling to curb inflation, which, driven by higher food and energy prices, hit 15.7 per cent in February and has fuelled labor unrest, especially among factory workers who say they cannot make ends meet.

Japan’s economy has so far shown resiliency, but experts on the world’s second largest economy worry that Japan’s export-led recovery could stall if US economic troubles deepen.

At the U.S. Department of the Treasury, the leadership has confidence that the U.S. economy will rebound in the next quarter.

The U.S. economy is going through a rough patch but, thanks to a government fiscal package worth some $150 billion, should start recovering as soon as the second quarter, a senior Treasury official said on Tuesday.

“The booster shot that’s been given to the U.S. economy is going to boost consumer spending, is going to boost business investment — that will lead to both higher growth and higher job creation,” Robert Kimmitt, Deputy Treasury Secretary told Sky News in the UK.

“Many economists predict, and we agree, that we will see that upturn in the second quarter,” he said.

A Few Ways I Can Tell We Are In A Recession
(These may or may not apply to your neighborhood….)

1. The AA clubhouse starts charging for matches and coffee — and is considering a ‘no smoking’ policy just so the gang can save money.
2. The church no longer supplies a pen near the pile of the collection envelops.
3. People actually born in America are eating at the Peruvian Pollo Chicken restaurant.
4. The neighborhood restaurant no longer has music. Now you do karaoke.
5. You no longer know the pizza man’s name.
6. You’re going to have to use our IRS refund for gas instead of a vacation.
7. A resident of the shelter is wearing a tie and a lapel pin from a bank.
8. A bunch of realtors joined the prayer group.
9. The number of Spanish speaking illegals standing on your street looking for work has doubled.
10. You’re looking for a lock for your gas cap….

March 11 (Bloomberg) — Thaksin Shinawatra, ousted as premier and banned from politics, said Thailand’s newly elected government must repair economic damage to the country caused by the military coup that unseated him in 2006.Former Thai Prime Minister Thaksin Shinawatra greets journalists as he arrives at his family-funded foundation headquarters in Bangkok March 11, 2008. Thaksin insisted in an interview with foreign correspondents he would not return to politics.REUTERS/Sukree Sukplang (THAILAND)

“We have to bring back confidence to Thailand after the coup,” Thaksin said in an interview with Bloomberg News. “It’s quite difficult, but the government has to try harder.”

By John E. Carey
Peace and Freedom
January 10, 2008
Updated 1700 Eastern Time USA

Home sales are in crisis, unemployment benefit applications are at an all time high, and retail sales in December were the worst in 5 years. Recession?

The Federal Reserve says no.

The Wall Street traders we spoke to said, “Yes. Absolutely. To say the U.S. is not in a recession is to deny the trouble — the problem — and not face the urgency of our difficult times. The question is not ‘Are we in a recession?’ The question is ‘When will it end?'”

Home furnishings manufacturer and retailer Ethan Allen Interiors Inc. plans to close 12 retail stores and two service centers, cutting operating costs amid a slowdown in the housing market.

Retail sales in December wore the worst in five years.

Although WalMart and Costco booked small gains in December sales (between 2 and 4%); their earnings reports were seen by analysts that shoppers were turning to more cost effective products like bulk food supplies.

Concerns about higher gasoline prices and food costs as well as declines in the credit and housing markets have reduced shoppers’ mall trips and made them tighten their purse strings, analysts said.

A lack of must-have fashion items over the holiday sales season also hurt the appetite for apparel buying, they said.Retailers, while trying to keep inventory lean at the start of the season, have been pressured to give more discounts to clear unsold merchandise, pressuring profit margins, investors said.

All the “higher-end” retail stores reported sharp drops in December sales: some over 10%.

Macy’s sales declined 7.9%, worse than a 6.5% drop expected by analysts and missing the company’s own forecast of a drop of 4% to 7%. The department store retailer forecast fourth-quarter profit to be at the low end of its forecast range of down 2% to up 1%. It sees January sales to decline by 4% to 6%.

Hiring stagnated in December, pushing the unemployment rate up to 5 percent, a two-year high.

Financial analysts are loathe to use the word “recession.”

One TV financial expert told Peace and Freedom, “If I say on TV that the U.S. is in a recession, every corporate man that expected to hire three people today might only hire one. Using the word recession typically means consumer and business spending will decline some simply because of the psychological impact of that awful word ‘recession.’”

Interet rates will likely be cut to improve buying and boost the economy.
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WASHINGTON – (AP) Federal Reserve Chairman Ben Bernanke pledged Thursday to slash interest rates yet again to prevent housing and credit problems from plunging the country into a recession.

Federal Reserve Chairman Ben Bernanke addresses a housing and economic forum, Thursday, Jan. 10, 2008 in Washington. Even though he said the Fed would lower interest rates, he refused to admit that the US was in a recession. Wall Street traders said he did not understand the problem or the urgency.(AP Photo/Gerald Herbert)

The economy kept powering ahead last month despite record high oil prices and worries about the solvency of banks on Wall Street, generating an unexpectedly strong 166,000 jobs in services from retirement homes to restaurants.

Unemployment held steady at the historically low rate of 4.7 percent despite layoffs at mortgage firms, home builders, manufacturers and retailers, the Labor Department said in a report yesterday. Wage gains moderated to 3.8 percent in the last year, possibly reflecting a move to a mix of lower-paying jobs as the housing crisis destroys many premium positions in real estate and finance.

“The labor market shrugged off the weakness in housing and finance,” said Harm Bandholz, economist at Unicredit Markets.

But the apparent strength masked a slowing trend that has been in place all year, he added. Weakness in the summer held the average monthly job gain since June to 88,000, down from 114,000 in the first half of the year and 168,000 last year.

A “huge tsunami” of economic instability will engulf the globe’s financial markets if China bows to international pressure to switch the yuan to a free-floating currency, warns Australia’s treasurer. For America: higher interest rates, a falling dollar and soaring inflation may be about to smack home like the biggest wave since the Great Depression.

When China floats the yuan, it will be “a wild ride,” Peter Costello, the Australian treasurer, warned. “That will set off a huge tsunami that will go through world financial markets.”

For years, China has run a massive trade surplus with America—running into the trillions of dollars. Many U.S. officials feel the reason for this, at least in part, is the fact that China has kept its currency undervalued in relation to the dollar.

The fallout from the mortgage crunch worsened substantially yesterday, with single-family home sales plummeting to the lowest level since 1998 and Merrill Lynch reporting an unprecedented $7.9 billion write-down for bad loans — the latest in a weeklong series of setbacks for the economy and the markets.

The news drove down the Dow Jones Industrial Average by as much as 200 points, but the index regained all the ground it lost after economists said the dire straits facing financial and housing companies — and the unknown effect it will have on consumers — will prompt the Federal Reserve to cut interest rates again next week to rescue the faltering economy.

The news from Merrill Lynch — which reported the biggest quarterly loss in its 93 years of existence — was particularly “startling” and “staggering,” said Standard & Poor’s Corp., as the world’s largest brokerage had been considered healthy and relatively immune to the mortgage virus infecting other big banks on Wall Street.